First Amendment to Second Amended and Restated Credit Agreement

Exhibit 10.1

FIRSTAMENDMENT TO SECOND AMENDED AND RESTATED
CREDIT AGREEMENT

This FIRST (this “Amendment”), made andentered into as of June 30, 2006, is by and between MagStar Technologies, Inc.,a Minnesota corporation (the “Borrower”), and U.S. Bank National Association, anational banking association (the “Lender”).

RECITALS

1.             TheLender and the Borrower entered into a Second dated as of June 30, 2005 (as hereafter amended the “CreditAgreement”); and

2.             TheBorrower desires to amend certain provisions of the Credit Agreement, and theLender has agreed to make such amendments, subject to the terms and conditionsset forth in this Amendment.

AGREEMENT

NOW, THEREFORE, for good andvaluable consideration, the receipt and adequacy of which are herebyacknowledged, the parties hereto hereby covenant and agree to be bound asfollows:

Section 1.Capitalized Terms. Capitalized terms used herein and not otherwise defined herein shallhave the meanings assigned to them in the Credit Agreement, unless the contextshall otherwise require.

Section 2.Amendments. TheCredit Agreement is hereby amended as follows:

2.1          Definitions. Clause (b) of thedefinition of “Eligible Inventory” in Section 1.1 of the Credit Agreementis amended to read as follows:

(b) theInventory consists of raw materials or finished product (not including work inprocess and supplies and not including Slow Moving Raw Materials Inventory,Slow Moving Finished Goods Inventory and Slow Moving Inventory);

2.2          Revolving Maturity Date. Section 2.1(a) ofthe Credit Agreement is amended by deleting therefrom the date “June 30,2006” and inserting in its place “June 30, 2007” as the Revolving MaturityDate.

2.3          Interest Rate Reduction. Section 2.4of the Credit Agreement is amended by deleting therefrom the phrase “Prime Rateplus 2.0%” and inserting in its place the phrase “Prime Rate plus 0.5%”.



2.4          Borrowing Base. Section 2.5 of theCredit Agreement is amended in its entirety to read as follows:

Section 2.5 Borrowing Base and MandatoryPrepayment. The Borrowing Base shall be equal to the sum of (1) 40% ofthe lower of cost or market value of raw materials Eligible Inventory; plus (2) 30%of the lower of cost (determined on a first in, first out basis) or marketvalue of finished goods Eligible Inventory (provided that the EligibleInventory set out in clauses (1) and (2) shall be a part of theBorrowing Base for only up to 120 consecutive days in any fiscal year, plus,(3) at all times,  85% of the face value of Eligible Accounts. TheBorrower shall deliver borrowing base certificates in substantially the formattached hereto (a “Borrowing Base Certificate”) to the Lendercontemporaneously with each Advance request and in any event not less thanmonthly. Each such certificate shall state the amount of Eligible Accounts,Eligible Inventory (during the applicable period) and the Borrowing Base as ofthe last day of the previous month. Any limitations on advances or requiredprepayments relating to the Borrowing Base shall be based on the latestborrowing base certificate the Borrower shall have delivered to the Lender. Ifthe principal balance of the Advances at any time exceeds the Borrowing Base,the Borrower shall immediately prepay the Advances by the amount of thatexcess.

2.5          Collateral Audits. Section 5.5 of theCredit Agreement is amended by deleting therefrom the phrase “more than threecollateral audits” and inserting in its place the phrase “one collateral audit”,as the number of collateral audits the Borrower may be required to pay for inany calendar year.

2.6          Fixed Charge Coverage Ratio Deletion. Section 6.10of the Credit Agreement is amended to read as follows:

Section 6.10  Reserved.

Section 3.Effectiveness of Amendments. The amendments contained in this Amendment shall become effectiveupon delivery by the Borrower of, and compliance by the Borrower with, thefollowing:

3.1          ThisAmendment duly executed by the Borrower.

3.2          A copy of theresolutions of the Board of Directors of the Borrower authorizing theexecution, delivery and performance of this Amendment certified as true andaccurate by its Secretary or Assistant Secretary, along with a certification bysuch Secretary or Assistant Secretary (i) certifying that there has beenno amendment to the Articles of Incorporation or Bylaws of the Borrower sincetrue and accurate copies of the same were last delivered to the Lender with acertificate of the Secretary of the Borrower, and (ii) identifying eachofficer of the Borrower authorized to execute this Amendment and any otherinstrument or agreement executed by the Borrower in connection with thisAmendment  (collectively, the “AmendmentDocuments”), and certifying as to specimens of such officer’s signature andsuch  officer’s incumbency in suchoffices as such officer holds.

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3.3          The Borrowershall have satisfied such other conditions as specified by the Lender,including payment of all unpaid legal fees and expenses incurred by the Lenderthrough the date of this Amendment in connection with the Credit Agreement andthe Amendment Documents.

Section 4.Representations, Warranties, Authority, No Adverse Claim.

4.1          Reassertion of Representations andWarranties, No Default. The Borrower herebyrepresents that on and as of the date hereof and after giving effect to thisAmendment (a) all of the representations and warranties contained in theCredit Agreement are true, correct and complete in all respects as of the datehereof as though made on and as of such date, except for changes permitted bythe terms of the Credit Agreement, and (b) there will exist no Default orEvent of Default under the Credit Agreement as amended by this Amendment onsuch date which has not been waived by the Lender.

4.2          Authority, No Conflict, No ConsentRequired. The Borrower represents and warrantsthat the Borrower has the power and legal right and authority to enter into theAmendment Documents and has duly authorized as appropriate the execution anddelivery of the Amendment Documents and other agreements and documents executedand delivered by the Borrower in connection herewith or therewith by propercorporate action, and none of the Amendment Documents nor the agreementscontained herein or therein contravenes or constitutes a default under anyagreement, instrument or indenture to which the Borrower is a party or asignatory or a provision of the Borrower’s Articles of Incorporation, Bylaws orany other agreement or requirement of law, or result in the imposition of anyLien on any of its property under any agreement binding on or applicable to theBorrower or any of its property except, if any, in favor of the Lender. TheBorrower represents and warrants that no consent, approval or authorization ofor registration or declaration with any Person, including but not limited toany governmental authority, is required in connection with the execution anddelivery by the Borrower of the Amendment Documents or other agreements anddocuments executed and delivered by the Borrower in connection therewith or theperformance of obligations of the Borrower therein described, except for thosewhich the Borrower has obtained or provided and as to which the Borrower hasdelivered certified copies of documents evidencing each such action to theLender.

4.3          No Adverse Claim. TheBorrower warrants, acknowledges and agrees that no events have been taken placeand no circumstances exist at the date hereof which would give the Borrower abasis to assert a defense, offset or counterclaim to any claim of the Lenderwith respect to the Obligations.

Section 5.Affirmation of Credit Agreement, Further References, Affirmation of SecurityInterest. TheLender and the Borrower each acknowledge and affirm that the Credit Agreement,as hereby amended, is hereby ratified and confirmed in all respects and allterms, conditions and provisions of the Credit Agreement, except as amended bythis Amendment, shall remain unmodified and in full force and effect. Allreferences in any document or instrument to the Credit Agreement are herebyamended and shall refer to the Credit Agreement as amended by this Amendment.  The Borrower confirms to the Lender that theObligations are and continue to be secured by the security interest granted bythe Borrower in favor of the Lender under the Security

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Agreement, and all of theterms, conditions, provisions, agreements, requirements, promises, obligations,duties, covenants and representations of the Borrower under such documents andany and all other documents and agreements entered into with respect to theobligations under the Credit Agreement are incorporated herein by reference andare hereby ratified and affirmed in all respects by the Borrower.

Section 6.Merger and Integration, Superseding Effect. This Amendment, from and after the datehereof, embodies the entire agreement and understanding between the partieshereto and supersedes and has merged into this Amendment all prior oral andwritten agreements on the same subjects by and between the parties hereto withthe effect that this Amendment, shall control with respect to the specificsubjects hereof and thereof.

Section 7.Severability. Wheneverpossible, each provision of this Amendment and the other Amendment Documentsand any other statement, instrument or transaction contemplated hereby orthereby or relating hereto or thereto shall be interpreted in such manner as tobe effective, valid and enforceable under the applicable law of anyjurisdiction, but, if any provision of this Amendment, the other AmendmentDocuments or any other statement, instrument or transaction contemplated herebyor thereby or relating hereto or thereto shall be held to be prohibited,invalid or unenforceable under the applicable law, such provision shall beineffective in such jurisdiction only to the extent of such prohibition,invalidity or unenforceability, without invalidating or rendering unenforceablethe remainder of such provision or the remaining provisions of this Amendment,the other Amendment Documents or any other statement, instrument or transactioncontemplated hereby or thereby or relating hereto or thereto in suchjurisdiction, or affecting the effectiveness, validity or enforceability ofsuch provision in any other jurisdiction.

Section 8. Successors. The Amendment Documents shall be binding uponthe Borrower and the Lender and their respective successors and assigns, andshall inure to the benefit of the Borrower and the Lender and the successorsand assigns of the Lender.

Section 9. Legal Expenses. As provided in Section 8.2 of theCredit Agreement, the Borrower agrees to reimburse the Lender, upon executionof this Amendment, for all reasonable out-of-pocket expenses (includingattorney’ fees and legal expenses of Dorsey & Whitney LLP, counsel forthe Lender determined according to such counsel’s generally applicable rateswhich may be higher than the rates charged to the Lender in certain matters)incurred in connection with the Credit Agreement, including in connection withthe negotiation, preparation and execution of the Amendment Documents and allother documents negotiated, prepared and executed in connection with theAmendment Documents, and in enforcing the obligations of the Borrower under theAmendment Documents, and to pay and save the Lender harmless from all liabilityfor, any stamp or other taxes which may be payable with respect to theexecution or delivery of the Amendment Documents, which obligations of theBorrower shall survive any termination of the Credit Agreement.

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Section 10.Headings. Theheadings of various sections of this Amendment have been inserted for referenceonly and shall not be deemed to be a part of this Amendment.

Section 11.Counterparts. TheAmendment Documents may be executed in several counterparts as deemed necessaryor convenient, each of which, when so executed, shall be deemed an original,provided that all such counterparts shall be regarded as one and the samedocument, and either party to the Amendment Documents may execute any suchagreement by executing a counterpart of such agreement.

Section 12.Governing Law. THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY THE INTERNALLAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWPRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONALBANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.

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IN WITNESS WHEREOF, the partieshereto have caused this Amendment to be executed as of the date and year firstabove written.

BORROWER:

 

 

 

 

 

 

MAGSTAR TECHNOLOGIES, INC.

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Joseph A. Petrich

 

 

Title:

 

Chief Financial Officer and Treasurer

 

 

 

 

 

LENDER:

 

 

 

 

 

 

U.S. BANK NATIONAL ASSOCIATION

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

/s/ Benjamin Johnson

 

 

Title:

 

Vice President